Oil Rises to Record Above $144

Crude oil rose to a record above $144 a barrel in New York as the European Central Bank is poised to increase interest rates and U.S. stockpiles unexpectedly fell to their lowest since January.

Economists are forecasting the ECB will raise its 4 percent benchmark rate by a quarter percentage point today, weakening the dollar and spurring commodity buying as an inflation hedge.

Investors are purchasing oil, which has doubled this past year, as U.S. equities slump, with the Standard & Poor’s 500 Index falling yesterday to its lowest level in two years.

Crude oil for August delivery climbed as much as $1, or 0.7 percent, to $144.57 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It was at $144.45 at 3:07pm in Singapore.

ECB Hike Expected; Will US Economy Lose More Than 100K jobs?

The dollar traded near a two-month low against the euro on speculation U.S. payrolls dropped for a sixth month and the European Central Bank will signal more than one interest-rate increase is needed to curb inflation.

The Labor Department will probably report today that U.S. employers eliminated 60,000 jobs including government positions last month, according to the median forecast of 79 economists surveyed by Bloomberg.

The dollar weakened 1.2 percent against the euro and 1 percent versus the yen on June 6, when the government reported that the U.S. lost 49,000 jobs in May.

Expected data is -60K for the NFP.

The dollar dropped to $1.5895 per euro, the weakest level since April 24, before trading at $1.5891 at 11:52am in London, from $1.5882 yesterday in New York.

The U.S. currency fell to a record of $1.6019 per euro on April 22. The dollar was at 106.30 yen from 105.91. The euro rose to 169.13 yen, the highest in a week, and was at 168.95 from 168.20.

Euro Extends Gains Against Pound and Greenback

The European single currency extended earlier uptrend against its British and US counterparts during New York afternoon deals today.

As of now (08:20 – GMT+8  ), the euro is trading near 0.7969 versus the British pound and 1.5883 against the US dollar.

Against the Japanese yen, the euro is worth 168.36.

Dollar Slides on ADP

The dollar fell sharply following this morning’s ADP private sector payrolls report, dropping to a fresh 10-week low versus the euro at 1.5885 and beneath the 106-level versus the yen.

The June ADP private-sector payrolls declined by more than expected, posting a loss of 79k jobs, far steeper than the forecasted loss of 20k jobs from 40k jobs created in May.

The disappointing jobs data bodes poorly for tomorrow’s June labor report, with consensus estimates for non-farm payrolls calling for a loss of 60k jobs while the unemployment rate is forecasted to improve to 5.4% from 5.5%.

In addition to the ADP report, data releases on Wednesday also included May durable goods orders and factory orders.

The revised May durable goods orders were in line with expectations and unchanged from the preliminary reading, while the excluding transportation figure improved marginally, posting a marginal improvement to -0.8% from -0.9%.

May factory orders were slightly better than expected at 0.6%, beating calls for a larger decline to 0.4% from 1.1% previously.

Asian Currencies: TWD Stronger

Taiwan’s dollar climbed more than any Asian currency this year as improving relations with China bolstered investor confidence in the island’s economy.

The currency climbed 6.8 percent against the U.S. dollar, beating the 6.5 percent gain in the Chinese yuan, as charter flights will start between Taiwan and China this month.

Taiwan’s economy grew 6.1 percent in the first quarter from a year earlier as exports of electronics and chemicals to China helped the island weather a U.S. economic slowdown.

Taiwan’s currency reserves have almost doubled in the past five years to $290 billion and the trade surplus was $2.2 billion in May. The central banks on both sides of the 100-mile (161-kilometer) Taiwan Strait have allowed their currencies to appreciate to moderate inflation.

Other Asian currencies do not share the same fortune.

Asian currencies with smaller surpluses under-performed this year. The Thai Baht dropped 11 percent, the most in Asia, as the current account turned into a deficit and protesters laid siege to the Prime Minister.

The Philippine peso weakened 8.3 percent as record rice costs sent President Gloria Arroyo’s popularity to the lowest since 2005.

The South Korean won lost 10.6 percent as record oil prices widened its trade deficit and prompted a strike by truck drivers that brought ports to a near standstill.

The Taiwan dollar climbed 0.2 percent in June to NT$30.354, the second monthly gain and was little changed at NT$30.371 today.

The yuan, up 1.3 percent last month is trading at 6.8584 per USD today.

USD Weakens Before Payroll – Euro Remains Firm Ahead ECB Meeting

The Euro remains firm ahead of the ECB meeting on Thursday. Yesterday, the June consumer price index estimate came in at 4% double the central bank’s 2% inflation target.

Yesterday, Germany reported strong consumer spending and the lowest unemployment rate in 14 years. Manufacturing sector PMI for the Eurozone was also revised higher in the month of June due to stronger activity in France and Germany.

The combination of higher inflationary pressures and better than expected economic data could force the ECB to backtrack on their warnings and actually prepare the market up for more than one rate hike in the third quarter.

Up until now the ECB has openly hinted that a rate hike in July will one-off, but given the recent reports, 2 rate hikes from the ECB this year is more than realistic.

Eurozone producer prices are due for release tomorrow and given the rise in wholesale sales and import prices, we expect the PPI number to be hot. A 50bp rate hike by the ECB on Thursday may not be out of the question.

Meanwhile Swiss PMI numbers hit a 3 year low while the prices paid or inflation component of the report jumped to a 1.5 year high.

The dollar traded near a three-week low against the euro before an industry report today that may show U.S. companies reduced jobs in June for the first time in four months.

The U.S. currency also traded near a three-week low versus the yen before government data tomorrow that may show employers in the world’s biggest economy cut workers for a sixth straight month, prompting traders to pare bets the Federal Reserve will raise interest rates.

The dollar traded at $1.5810 per euro at 11:01am in Tokyo from $1.5793 yesterday.

It touched $1.5836 on June 30, the lowest level in three weeks, and fell to a record $1.6019 on April 22.

The dollar weakened to 105.84 yen from 106.13 yen. It reached a three-week low of 104.99 yen on June 30.

USD Firms on ISM

The greenback recovered against the majors in the Tuesday session following sharply better than expected US manufacturing data, pushing the currency toward the 106-level against the yen and 1.5734 against the euro.

The June manufacturing ISM report defied consensus estimates for a deterioration to 48.6 from 49.6 in May, instead climbing above the key 50-level to 50.2 – which distinguishes between expansion and contraction.

Traders will turn to the Wednesday session, with the calendar to include the June ADP payrolls figure, May durable goods, new goods orders and factory orders.

The June ADP payrolls figure, often viewed as a proxy for the more closely watched non-farm payrolls, is estimated to decline by 20k, versus a 40k increase in the previous month.

Meanwhile, the revised May durable goods orders figure is seen unchanged with a flat reading and factory orders are seen declining to 0.4% for May versus 1.1% previously.

US ISM Manufacturing Signals Expansion For First Time In 5 Months: Is It an Overproducing Momentum?

The Institute for Supply Management’s (ISM) index of conditions in the manufacturing sector in June unexpectedly rose above 50 – indicating expansion – for the first time in five months to 50.2 from 49.6.

A breakdown of the report reflects a surge in the prices paid component, which hit a 34-year high of 91.5 from 87.0, as rocketing commodity prices boost input costs.

Indeed, the data only underpins the Federal Reserve’s hawkish bias, as record oil prices threaten to spread further down to the consumer level.

Furthermore, production and inventory growth accelerated slightly, but on the other hand, new orders contracted.

This suggests that manufacturers may be overproducing for current demand levels, and thus, inventories are now building up.

Clearly, this would have negative implications as producers will likely be forced to cut selling prices to reduce inventories later on, which will squeeze profit margins further.

Meanwhile, the employment component slipped down to 43.7 from 45.5, marking the eighth consecutive month that manufacturers have let workers go.

This does not bode well for this Thursday’s US non-farm payrolls report, as layoffs in this sector will weigh on the overall index.

Greenback Slightly Higher Versus Most Majors Ahead of June ISM Data

At 10 am ET, the Institute for Supply Management will release its Manufacturing Index, which gives a detailed look at the manufacturing sector.

Economists expect the manufacturing index to fall to a reading of 48.7 from May’s reading of 49.6.

The dollar was firmer in trading against its major counterparts ahead of the data.

As of now, the dollar is trading at 1.9955 versus pound, 105.52 versus yen and 1.5777 versus euro.

Financial Markets: Headlines for July 1st

$       The US Chicago PMI rose to 49.6 in June from 49.1 in May on the back of faster growth in supplier deliveries (58.8  ) and a slower contraction in employment (46.7); the prices paid balance declined to 85.5 from 87.5 previously

€       The Eurozone “flash” CPI rose to 4.0%YoY in June from +3.7%YoY in May and came in above the market consensus of 3.9%YoY

€       The ECB announced a benchmark allotment of €150.5bn in the weekly MRO; last week the ECB allotted €208bn which was €35bn above the benchmark amount to cover the half-year turn

€       German real retail sales rose faster-than-expected at 1.3%MoM in May versus a decline of 0.6%MoM in April

€       The Italian preliminary June CPI rose to 3.8%YoY versus the market consensus for a steady pace of 3.6%YoY

£       UK Nationwide house prices fell 0.9%MoM in June versus a faster decline of 2.5%MoM in May; the 12m rate fell to 6.3% from -4.4% previously

£       UK mortgage approvals were lower at 42k in May versus the median market forecast of 51k and 58k in April.

£       UK final M4 money supply growth was unrevised at 10.0%YoY in May versus a downwardly revised 10.9%YoY in April (initially 11.0%)

£       UK services output rose at a steady pace of 0.3% in the three months to April versus the three months to January; business services and finance output declined 0.3% in the three months to April which was the first decrease on this basis since August 2002.